Posts Tagged ‘credit crisis’

Do you think of labor in a factory to be a resource, or an asset? Do you believe that it should be ‘every man for himself!’ or do you believe in community being worth investing in? A pure capitalist would view labor as a resource, to be exploited to the utmost. A civic minded person believes that the community is valuable, and well worth investing in. Pure capitalism is self-destructive, as we have witnessed, because all of the wealth ends up in the hands of a few, and the economy comes to a halt, because no one can buy anything.

Part of the reason that the government has grown so large is because the community has had to band together to deal with the consequences of our capitalist society, which aims to use people up and throw them away. If employers took care of their employees as if they were an asset, an investment in training, experience, and knowledge accumulated over time on the job, than government would not be needed to redistribute the wealth through taxation. Health care, retirement, housing, all would be affordable, and available to all.

Every one wants a bigger slice of the pie. Even though the pie is not getting larger, and there are more people wanting a slice. Taking some from somebody else to have more for yourself is called greed. Greed has betrayed capitalism in the United States, pushed rational thinking aside, and driven us right over the edge. Instead of investing in the future, to assure that the future is the one that we desire, we have been enticed to spend everything, and more, right now. In return, our jobs have been outsourced overseas, our taxes are buying less and less services, and everything is horribly expensive.

Only huge, economy-wide growth, on a scale never seen before, can pull us out of an economic implosion. Asset deflation is likely to set in, as prices drop, values decrease, and people have no money to spend. Deflation scares the wealthy more than anything else, because it steals away their wealth even through locked vault doors. To avoid another Great Depression, a new set of rules are needed.

Investment has got to be with the intent of value increasing over the long term, not in order to pay today’s bills. Cash dividends to stock holders is the single most damaging policy of all modern business practices. It robs the future to allow luxury for a time, and corrupts the process of management. Stock should increase in value, and be split, to reward its owners, as the company becomes more and more valuable. But that can’t happen when the profits are being funneled into cash to pay to stockholders.

Congress can never be said to avoid taking action, because every crisis and major decision sees some form of commission, committee, or dog and pony show created do provide guidance. The congress itself is too busy running for re-election to actually study the issues, so they delegate someone else to do it. This tactic is especially popular when unpopular decisions are needed, because the legislator can always say that they just followed the recommendations of the body which was responsible for that action. This is, of course, out and out denial of the congress members duty to take responsibility for their actions.

Responsibility is what the commission that sparked this diatribe is investigating; who can get the credit for the American economy collapsing around the remainder of Wall Street. Somewhere, there has got to be a person or persons whose decisions were instrumental in causing tho worst economic collapse since the Great Depression, or so the thinking goes, apparently. The Financial Crisis Inquiry Commission is charged with establishing just what caused the best party the rich had enjoyed in centuries to come so suddenly to an end.

But, over and over again, executives state they were following sound business practices, and that it was unstoppable market forces which overwhelmed them. They had no responsibility for all the bad things that happened. We should not be surprised, because it would take some too dim of wit to survive on Wall Street to stand before a commission and say, “We were greedy, and got in over our heads.” Which is what the whole crisis amounted to; greed distorting the judgment of everyone from home owners to heads of multinational banks.

How ‘sound’ is a business practice which is based on the market continuing an unprecedented surge, or the willingness of others to loan money? It sounded great when the money was rolling, but people were so busy putting it in their pockets that they didn’t set any aside for an overcast day. The smallest disturbance could threaten multi-billion dollar companies with extinction, it worked out, as dominoes fell one right after another, until the whole thing went right off a cliff. How can you expect to see a cliff when you are driving 100 miles per hour? The profit taking was so supercharged that no one even considered easing up on the gas a little.

Well, it was nice while it lasted, and some people made a lot of money, but most of us ended up with less. Is it our money that those people got?

The new strategy of the Republican party is to just say “No”. No to anything that represents progress, because the Democrats are in control. The Republicans are willing to sacrifice the working of government in order to take back control of that government. To what end to they seek control? To stop any attempt at new regulation of the financial sector, to stop implementation of the first attempt at health care reform. To allow unbridled access to America’s parks and national forests for resource extraction. To insure that the rich get richer, and that middle class folks are set with an even greater burden.

Our economy is still suffering the effects of the worst financial meltdown since the Great Depression. Evidence is mounting that this was not simply a bursting of a bubble, but an orchestrated, planned destruction of wealth, in order that wealth could be consolidated by a select few. Most people lost money in the Great Recession, but some people made money. Lots of money. The government was forced to take unprecedented actions to keep the entire economy of the world from collapsing. The Republican administration under George Bush took those steps, reluctantly, yes, but with no alternative which would not lead to complete economic meltdown.

Now, those same Republicans are trying to blame the Obama administration for what their president did. They cry “No more bailouts,” yet what do they offer as a means of preventing the same situation from happening again? Obstructionism, denial, and misrepresentation. It was the Republicans who took this nation to war, violating the most basic of all rules, that against attacking someone who has not attacked you. The Republican party has allowed flagrant violations of safety laws in the coal mining industry, sought ways to evade the Clean Water Act, and saddled our efforts to explore the Solar System with an unworkable program.

What kind of person will deny any effort to accomplish something merely to make themselves look good? A Republican will. Republicans see no problems with the health care system in the United States, even though the costs of providing health care to state workers is bankrupting the states, and growing numbers of Americans have no access to health care beyond the local Emergency Room.

The Republicans want you to believe that they are protecting the core values of the United States. Nothing could be further from the truth. What they seek is further license to steal, to degrade, and to swindle. Democrats opposed Republican legislation because they disagreed with it. Republicans oppose Democratic legislation because it is Democratic legislation, even if they agree with it. They are willing to allow the financial sector to take another stab at destroying America, just so that the government that oversees that destruction will be Republican.

There is a lot of loose talk going around right now about ‘bubbles’, the housing bubble, the bubble economy, the credit bubble, I almost feel like I am watching the Lawrence Welk show. Contrary to popular belief, the economy was deeply into bubbles long before anyone had even coined the term. It really started in the 1960’s, when consumer spending began to fall of, due to the fact that the consumers had spent all of their savings, and now were cutting back on purchasing stuff that they really didn’t need.

This was a crisis for the money barons of America, because they were dependent upon a certain level of consumption in order to go on accumulating wealth at the rate they believed was essential, as well as their right. Instead of reshaping the economy to depend on production of advanced goods, or space exploration equipment, or high speed trains, the powers that be decided to maintain the economy in the form it was in, and encourage spending by making credit more easily available.

Through judicious advertising, the American people were gradually brainwashed from their old belief that credit was a tool of the devil into thinking of credit as wonderful thing, which they would have to pay for some day. Credit cards appeared, only they were the mark of high society, because those folks couldn’t be bothered to carry cash, don’t you know. Of course, everyone wanted one, and, within about 10 years, just about everyone had one. Or two. Or three.

Consumer spending actually rose, as people were more than happy to spend what they had not yet earned on something which they almost certainly could live without. Our lifestyles were profoundly influenced by television, which carefully showed us the kind of world that we thought we wanted to live in. But what we were being taught was that we needed to consume in order for us to be valid persons. Spending was our way of assuaging our anxiety over our popularity, which we just knew was based upon what kind of car we drove, where we lived, and our income.

A historic change in attitudes was orchestrated by the makers of water heaters, shampoo, and personal hygiene products to convince people that bathing every single day was not only normal, but essential. The single greatest luxury in the world, bar none, which many, many people have never even experienced, much less enjoyed very often, and Americans zip right through one every morning. If you don’t smell like something that comes out of a bottle, or some kind of soap, you are a heathen, a barbarian, an uncouth lout, who will never get laid, promoted, or married.

So what if we are forcing our bodies to manufacture immense quantities of oil, we are consuming! So what if our truck only gets 12 miles to the gallon on the highway, we are consuming! The solutions to many of our problems do not require whole new technologies, like wind, and solar. They are desirable in and of themselves, but we could slash our consumption of energy by nearly half, if we were to change our lifestyles, suffer some minor costs to our business, and accept that it is not our god-given right to be able to go anywhere we choose at the drop of a hat.

But the ones in control of things want us to go on believing that deserve all of these luxuries, and that we can pay for them somehow. Even as they watch the tidal wave of payments coming due beginning in 2012, they ignore any thought of changing the basic tenants of our economy, our financial system. There is no ‘tomorrow’ in most people’s way of accounting, just today. Other cultures may have 5 year plans, we have 5 minute plans, subject to change if some kind of profit is to be made.

Well, here is something that you can plan on; economic upheaval, turmoil, rapid, uncontrolled change, unemployment, hunger, homelessness, and bankruptcy. The bubble is just about to burst, the shell game is finally going to end, and America will crash, because we are so greedy we cannot cope with any change which threatens our way of life. Instead of allowing some change, a gradual turning away from dependence on consumer spending towards some other engine for the economy, our leaders have dutifully avoided dealing with the fundamental rot in the financial system. They even agreed to remove the very regulations which were written to prevent the kind of situation we are in.

But nature always seeks a balance, even in unnatural systems, such as our method of compensating people for their work. The lopsided distribution of wealth is a result not of value honestly created by hard work, but by the manipulation of numbers in machines. The people who know how to create real value by working with their hands, applying their craft, will still be comfortable. Those who know nothing except trading, wealth management, and investment banking will be panhandling, because the wealth will be gone.

We have managed to spend everything that we are going to make for the next several years, if we don’t lose our jobs, which means that we are not going to be able to spend money on things that we can live without, like transportation in our own car, new clothes, and food. Backyard lawns are likely to be turned into gardens, and community plots may become common. All bubbles burst, and this one is absolutely huge, because it was planned this way. Kind of. Almost. Would you believe, ‘allowed to happen with foreknowledge of the consequences’? Some people have made an awful lot of money in the last 50 years. But most of us have just been going further and further into the hole, digging merrily.

Imagine a world without credit. If you want something, you have to pay cash for it, whether it be a dress, a television, a car, or a house. As you might imagine, the pace of home sales would slow down somewhat. Auto sales might take a hit, too.

Well, this is where we are headed. The force of Greed has managed to screw up the credit system so badly that credit is about to disappear. You see, you can make money by lending people money, and Greed has pushed that to the point where we borrow money to do everything. Everything! States borrow money to make payroll until taxes come in. Companies borrow money instead of selling stock. Business people borrow money so that they can stock their shelves without having to pay for all the merchandise themselves.

This system was created by greedy people who wanted the everyday person to buy more stuff, from refrigerators to houses, because they would be able to profit from the sales. Credit became easier and easier to get, until a mere signature would secure a loan. Greed got so intent on making money that it lost it all, because it kept lending the same dollars out over and over again, until somebody couldn’t pay them back. All of a sudden, the people who had deposited their money in to some kind of investment, because the investments paid more than the interest on bank accounts would, those people watched their money disappear.

And money is still disappearing, as loans come due that cannot be paid. The government is borrowing huge sums of money, to try to get people wealthy enough to spend again, but the people are too far in debt to be able to spend any money that is given them without defaulting. Just before the economy fell in the toilet, a large number of companies decided that the cheap money swirling around everywhere was just too good of a thing to pass up on, so they borrowed a whole bunch of money. Those loans are coming due in a couple of years, and the companies are not likely to be able to pay them back.

All of which means that you might as well pay off your credit card, cut it up, and learn to live without, so that the shock won’t be so bad when things really collapse. Learn how to make things that you need, like clothing, furniture, food. Put money into some kind of saving account, even though it doesn’t pay very much interest. If the Federal Deposit Insurance Company cannot insure that your money is safe, than things are already in free fall.

Everyone seems to have forgotten that credit used to be very hard to get, generally only given when some kind of solid collateral could be held, such as a house. Borrow money to buy a car? Forget it, you might wreck the car the first week you own it. Borrow money to go on vacation? No way, you might not come back. That was the way the world was, until Greed got in the act.

Because of Greed, we are going to go back to that kind of world again, it looks like.

Your credit card company charges you for a late payment. Your bank charges you for an overdraft. A payday loan company charges you for borrowing money. These are all examples of wealth creation. The money that you are charged does not exist until the charge is made, and then it becomes numbers in computers.

This is the kind of wealth creation that the financial services sector performs. This is the kind of wealth that evaporates overnight. It used to be that banks made money by lending money that had been deposited with them to people who were going to build a company up, or to governments that were going to build bridges and roads. That is how America grew into a large and wealthy nation.

But the pace of growth wasn’t enough to satisfy some greedy people. They wanted to get rich faster. So new methods of making money were developed, like bank fees, credit card charges, and payday loans. Using these new practices, wealth was created at much faster rates. But is it real wealth, or just an illusion. The bank claims that you have the money it is charging you for the overdraft. The credit card company believes that you will come up with the money to cover the late payment fee. The payday loan company is certain to get your next paycheck.

But this money doesn’t actually exist until you earn it. By calling debt real money, we have grown our economy tremendously in the last few decades. However, we have not earned that money yet. By claiming that the money I am owed makes me worth more, I can convince someone else to loan me money. And so the velocity of money increases. But what real value has been created? What has been built, or paid for?

Nothing. And that is why we are in such a bind right now. Most of what is being called wealth is merely numbers in computers. There is no bridge, or road, or building, or house, or airplane, or anything else, to back up the numbers in the computers. It is a house of cards, a shell game. We can claim that we are wealthy even when everything that we earn for the next year is already spoken for.

The rich folks have won. They have all the money now, so the rest of us can’t play anymore. No matter what we do, we will not get any further ahead. Indeed, many of us will sink even further, in spite of working as hard as we can. Health care is going to become impossible to get, no one will loan us more money, because we already owe more than we can pay back, and new jobs are not going to appear.

When the 5 percent of the population that used to control 95 percent of the wealth refused to share even a 100th of 1 percent of that wealth, they made it impossible for those without any wealth to gain more. Greed has destroyed the game, making it impossible to continue. We might as well walk away.

The United States economy is a sick puppy right now, reeling after over 1 trillion dollars evaporated. The driving force of the economy in the past, consumer spending, has fallen drastically, as the middle class has been forced to live within its means. Credit is almost impossible to get, and has become more expensive. The declining value of homes has made the home equity loan a thing of the past. Unemployment is scaring people into paying off credit cards, and building up savings. Federal stimulus money has kept states from laying large numbers of employees, but the money is running out.

Maybe we ought to think about spending some of our money making the country more efficient. This would reduce our dependence on foreign energy sources, as well as cutting the emissions of greenhouse gases. Money would be freed up from energy costs, which could be used to increase spending. Consider: Many commercial buildings have no insulation. That is right. None. The average home more than 20 years old is seriously lacking in insulation, and often leaks air copiously.

Putting people to work right now is difficult, because plans have to be drawn up and approved, bids taken, and contracts let. But retrofitting homes and businesses could commence within weeks, if done properly. Although President Obama talked about a program such as this a few months ago, little has been said regarding it recently. Could it be that energy companies don’t want to see consumption reduced? Could it be that Congress doesn’t like giving money to the average American, although they have provided plenty to the big banks and two of the car companies?

Perhaps we could couple improved efficiency with greater reliance on solar and wind power. Low interest loans for solar panels and wind farms would probably increase the numbers in use considerably. We are falling behind the rest of the world in the use of renewable energy, especially in the field of solar. Building and installing solar panels would employ many people if we were to make a national push to utilize them.

Buses are a good way to save energy, and many parts of America have very few. Building buses financed by federal loans to local transit operators would create employment in the parts of the country which have been hit so hard by the fall in auto sales. People who ride buses save money which they can use to take their cars out for recreation, whereas people who drive to work often cannot afford Sunday drives.

There are ways to put people to work, right now, doing things that we would benefit from for years and years. Some seem socialistic, but saving our society seems a worthy enterprise to me. If we are going to keep borrowing money from China, at least we ought to do something worthwhile with it.

Right now, we don’t have time for dealing with health care costs, new legislation regarding the financial industry, or immigration reform. We have a great need to re-invent our economy, immediately, before we slip further into recession. Our old economy depended too much on manipulating money to make money, on huge profits on inefficient automobiles, and credit. Consumer spending was the engine of the economy, accounting for 70 percent of all economic activity.

Those days are long gone, and they are not coming back soon. But our economic model has not changed, and millions of people are sliding into permanent unemployment. Somehow, we have to find a way to create things that other people, people outside the United States are going to want. They do not want our automobiles, they do not want our computers, they do not want our clothes. What does America do better than anybody else? Besides screw, start wars, and piss people off in general, I mean.

We are the world’s leader in advanced aerospace technology right now. We are currently operating the only reusable spacecraft in the world. We have learned tremendous amounts about getting into space and getting back. By applying that knowledge to the development of a new generation of spaceplane, spacecraft designed solely to climb a short distance out of the atmosphere, and then return, we could lay the groundwork for another industrial revolution, one which would create more new wealth than has been made in all of Earth’s history.

The most difficult part of space travel is the getting into space. We have to accelerate ourselves to a velocity of 5 miles per second, 17,500 miles per hour, to be able to stay in orbit. There are several different rockets that can put freight into space, but only a few which can carry people. The space shuttle is one of them, and it is set to be retired this year. After that, the United States will not have a way to reach space, and will have to buy seats from the Russians to send our astronauts to the International Space Station. NASA had been developing an old-fashioned rocket to carry a small number of people into space, but it duplicates the capabilities of several existing American rockets in most ways. And none of the current or projected rockets will be able to carry more than a few people at a time.

This coming industrial revolution is going require people, lots of people, people who will be living and working in space. Getting them there is the only thing holding up this new revolution. Once that bottleneck is broken, investment in space stations; laboratories and orbital factories, is going to start. The United States has a head start in building the type of spacecraft that will be the backbone of space travel in the future, which will look a lot like the space shuttle. But, unlike the space shuttle, this spacecraft will only carry people, at least at first. The parts for the space stations can be sent up on freight rockets that already exist.

But having people use a rocket means that it has to be ‘man-rated’, which means that the chance that a malfunction will result in the death of the crew is minimized. These requirements add so much weight to existing rockets that they cannot be used. That is because they all take off straight up, which means that failure will have the crew right in the middle of a whole bunch of explosive materials.

But there is another way of reach space, besides going straight up in a rocket. By carrying the spacecraft to about 50,000 feet of altitude, the spacecraft can be launched where the air is thin enough that the spacecraft can fly horizontally and still go fast enough that it will reach space. Lower down in the atmosphere, the air is too dense to be able to do that, which is why rockets launch straight up, then curve toward the horizon.

The United States, under the guidance of NASA, could build the immense carrier wing needed to carry the spacecraft to launch altitude, and the spacecraft that will then fly to orbit, and return, to land where it took off, where it will be prepared to fly again. This kind of launch system can operate in bad weather, which rockets generally avoid, and does not require huge numbers of people to monitor every aspect of the spacecraft, the launch site, and the surrounding area. Because a malfunction will simply result in the spacecraft flying back to the landing sight, and not blowing itself apart, with the crew section floating to earth by parachute, it is not necessary to be aware of every detail.

Space flight which does not have to wait for perfect conditions, perfect performance, is the prerequisite of this industrial revolution. It must be low-cost, safe, and reliable. We have the ability to make it happen, and doing so in a short time would require the work of many people. It would also result in many people being paid enough that they could afford to hire housekeepers, gardeners, and music teachers. Coupled with a national program to improve the energy efficiency of the United States, employment for all could be achieved in a matter of months.

What was spent on the fiscal stimulus program would have paid for the complete development of this new spacecraft, the carrier wing, and the launch and recovery facilities, as well as the ground support needed to operate it, several times. No other investment we can make offers the potential for larger returns, for new wealth to be created. Other nations are anxious to take part in this revolution, and some are planning to start it themselves.

But this revolution will need people on the spot, people who can perform experiments, people who can figure out how to make things work, people to keep things working. Lots and lots of people. People who will ride to work on spacecraft that take off and land like airplanes. Spacecraft that we can, and need, to build.

President Obama’s push to reform the financial system is causing disquiet in many executive offices. Yet he has not proposed any serious changes in the way that business will be done, instead merely expressing a desire to create a source of funds which would be used to bail out big banks that get in trouble, as well as seeking some form of protection from predatory lending for the average consumer.

No one has suggested taking steps to stop the underlying problem with the financial system, which is the selling of debt to investors. What used to be standard practice was never regulated, because there was no need. Banks traditionally carried the loans that they originated to maturity, even 20 year mortgages. There was no law saying that they had to, it was just the business model.

Bet greed changed things around, and banks discovered that they were able to sell those loans to other banks, which then packaged vast numbers of those loans into single investment vehicles, the infamous ‘collateralized debt obligation.’ Add the ratings agencies willingness to give these vehicles AAA ratings, and a whole new realm opened up. Gone are the days when the bank that wrote the mortgage was there to keep an eye on the borrower, or when a borrower could call the bank to talk about altering some aspect of their mortgage.

Mr. Obama also wants to stop the credit card companies from engaging in loan shark behavior, but his proposals do not address the penalties which banks can impose when a creditor is late with a payment, or goes over their credit limit. Nor does his proposal prevent credit cards from being issued to people who are likely to get behind on their payments. This has been a source of great revenue for credit card companies, at least on paper, because they can impose fees which, when combined, exceed the amount of the monthly payment whenever a creditor slips up. These fees can add up very quickly, so that a person with a 500 dollar credit limit is suddenly 1200 dollars in the hole over a credit card.

The credit card company counts that 1200 dollars as real money, which increases their net worth, irregardless of the ability of the creditor to pay. This can lead a person to file bankruptcy over credit card debt, which hinders their ability to rent an apartment, get a job, or even to travel, while the credit card company is faced with charging off substantial amounts of money it had been treating as already in its pocket. Instead of increasing consumption, the credit card company has hurt the prospects of consumption growing.

The business leaders of this nation have got to stop trying to increase consumption by handing out easy credit, and banks have got to stop trying to grow their profits by selling debt over and over again. Investors need to be putting their money into ventures which will create real, concrete growth, not numbers in accounts which can disappear overnight.